1688782 Ontario Inc. v. Maple Leaf Foods Inc.

2020 SCC 35 | Supreme Court of Canada | November 6, 2020

Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.

Joint Reasons for Judgment (paras. 1 to 96): Brown and Martin JJ. (Moldaver, Côté and Rowe JJ. concurring)

Dissenting Reasons (paras. 97 to 168): Karakatsanis J. (Wagner C.J. and Abella and Kasirer JJ. concurring)

I. Introduction

[ 1 ] This appeal is brought by 1688782 Ontario Inc., a former franchisee of Mr. Submarine Limited ("Mr. Sub") and the class representative of 424 other Mr. Sub franchisees ("appellant" or "Mr. Sub franchisees"). The appellant says that class members were affected by the decision of the respondents (collectively"Maple Leaf Foods") to recall meat products, in 2008, that had been processed in one of its factories in which a listeria outbreak had occurred. The appellant claims that class members suffered significant economic loss and reputational injury due to their association with contaminated Maple Leaf Foods products.

[ 2 ] The question for this Court to decide is whether Maple Leaf Foods (with which neither the appellant nor any other franchisee was in contractual privity, but rather linked indirectly through a chain of contracts) owed Mr. Sub franchisees a duty of care, enforceable under the Canadian law of negligence. The appellant says that Maple Leaf Foods, as the exclusive supplier of ready‑to‑eat ("RTE") meats sold by Mr. Sub franchisees, owed them a duty to provide meats fit for human consumption such that the franchisees may recover their lost profits, sales, capital value, and goodwill.

[ 3 ] Maple Leaf Foods says it owed no duty of care to Mr. Sub franchisees, and brought a motion for summary judgment dismissing these claims.

[ 4 ] The appellant successfully resisted summary judgment before the motion judge at the Ontario Superior Court of Justice, but failed before the Court of Appeal for Ontario. In the Court of Appeal's view, the motion judge's decision to allow these claims to proceed could not stand in light of this Court's decision in Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855.

[ 5 ] For the reasons that follow, we would dismiss the appeal. Maple Leaf Foods does not owe a duty of care to Mr. Sub franchisees in respect of these matters.

II. Background

[ 6 ] As Clarke J. (as he then was) explained in Cromane Seafoods Ltd. v. Minister for Agriculture, [2016] IESC 6, [2017] 1 I.R. 119, at para. 66, like "chaos theory" in mathematics"the true underlying difficulty [in the law of negligence] stems from the fact that we live in a highly interactive world where each of our fortunes are constantly affected by the actions of others". At the same time, however, we recognize that not all the injuries that we cause one another are the proper subject of legal complaint, and the law of negligence draws lines accordingly.

[ 7 ] More particularly, at the material time, the relationship between Mr. Sub and its franchisees was governed by the Franchisee Renewal Agreement, dated February 1, 2006 ("franchise agreement") (A.R., vol. II, p. 89).

[ 8 ] The relationship between Mr. Sub and Maple Leaf Foods was governed by an exclusive supply agreement — pursuant to which Maple Leaf Foods was made the exclusive supplier of 14 core Mr. Sub menu items: ready‑to‑eat ("RTE") meats served in all Mr. Sub restaurants ("partnership agreement", signed December 12, 2005, A.R., vol. II, at p. 12). In order to secure the benefit of a large, established and uniform network of customers, Maple Leaf Foods agreed to provide a 1‑800 line to franchisees and to have direct contact with franchisees, all for the purpose of customer service. Importantly, Maple Leaf Foods was not obligated by the terms of the partnership agreement to actually supply the RTE meats specified in it.

[ 9 ] It is worth noting that, while their franchise agreement with Mr. Sub required Mr. Sub franchisees to purchase RTE meats exclusively from Maple Leaf Foods, the latter was under no obligation by the terms of its contract with Mr. Sub to supply. Further, the franchise agreement also provided that the franchisees could not sue Mr. Sub for delays or failures in supply of products, or for changes to suppliers.

[ 10 ] On August 16, 2008, Maple Leaf Foods learned that one of its products had been found to contain listeria. It was required to recall that product, along with another. Several days later, it voluntarily recalled additional products, including two of the RTE meat products used by Mr. Sub franchisees. (These products were immediately destroyed, though alternatives were available from other sources, albeit at higher prices and without Mr. Sub's approval.) The recall was also highly publicized, including by press releases and public health advisories issued by both Maple Leaf Foods and the Canadian Food Inspection Agency (CFIA).

[ 11 ] There is no suggestion of wrongfulness in the decision to issue this voluntary recall. That said, it interrupted an important source of supply to the franchisees, leaving them without those products for a period of six to eight weeks. During that period, the franchisees did not take advantage of the clause in the franchise agreement allowing them to request the use of alternative suppliers.

A. Ontario Superior Court of Justice, No. 60680CP (November 18, 2016), Leitch J.

[ 12 ] The motion judge held that Maple Leaf Foods owed Mr. Sub franchisees a duty to supply a product fit for human consumption. In doing so, she accepted the appellant's argument that she should be guided by decisions in which other courts had recognized this duty, citing Plas‑Tex Canada Ltd. v. Dow Chemical of Canada Ltd., 2004 ABCA 309, 357 A.R. 139; Tanshaw Products Inc. v. Tectronics (1987) Inc., 2005 12626 (ON SC), [2005] O.J. No. 1701 (QL) (Sup. Ct.); and Country Style Food Services Inc. v. 1304271 Ontario Ltd., 2005 20484 (ON CA), [2005] O.J. No. 2620 (QL) (C.A.) ("Country Style"). She also held that Maple Leaf Foods owed a duty of care in relation to negligent misrepresentation.

[ 13 ] In an abundance of caution, however, in adjudicating the accompanying certification motion (2016 ONSC 4233), the motion judge conducted her own duty of care analysis as if this were a novel claim. She recognized that this required her to apply the traditional foreseeability‑based test from Anns v. London Borough of Merton, [1977] 2 All E.R. 492 (H.L.), as refined by Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537 ("Anns/Cooper framework"). She found the duty of care to be made out.

B. Court of Appeal for Ontario, 2018 ONCA 407, 140 O.R. (3d) 481, Sharpe, Rouleau and Fairburn JJ.A.

[ 14 ] The Court of Appeal allowed Maple Leaf Foods' appeal, and granted it summary judgment. The case authorities relied upon by the motion judge — Plas‑Tex, Tanshaw and Country Style — were not truly analogous to the Mr. Sub franchisees' claims (paras. 49 and 59), and the motion judge erred in finding that the facts in this case fell within a well‑established category of proximate relationships (para. 60). Applying Livent, the Court of Appeal found that the motion judge had also erred in finding a duty of care for negligent misrepresentation, as the scope of Maple Leaf Foods' undertaking was directed to consumers, not the franchisees (paras. 79‑82).

[ 15 ] The Court of Appeal noted that the alleged damages are substantially the result of the recall and the consequent publicity, including publicity of the illness and death of people who had eaten tainted meat (albeit not at a Mr. Sub restaurant) (para. 65). To recognize a duty here "would constitute an unwarranted expansion of a duty owed to one well‑recognized category of persons (consumers) into a duty owed to an entirely different category of persons (commercial actors in the supply chain)" (para. 66).

[ 16 ] Owing to what it saw as the motion judge's erroneous duty of care analysis, the Court of Appeal did not consider whether the losses were recoverable as a consequence of the negligent supply of a dangerous or shoddy product (para. 87).

III. Analysis

A. Pure Economic Loss in Negligence Law

[ 17 ] As the lower courts recognized, the claims of the appellant and other Mr. Sub franchisees are for pure economic loss, in the form of lost profits, sales, capital value and goodwill. Pure economic loss is economic loss that is unconnected to a physical or mental injury to the plaintiff's person, or to physical damage to property (Martel Building Ltd. v. Canada, 2000 SCC 60, [2000] 2 S.C.R. 860, at para. 36).

[ 18 ] To recover for negligently caused loss, irrespective of the type of loss alleged, a plaintiff must prove all the elements of the tort of negligence: (1) that the defendant owed the plaintiff a duty of care; (2) that the defendant's conduct breached the standard of care; (3) that the plaintiff sustained damage; and (4) that the damage was caused, in fact and in law, by the defendant's breach.

[ 19 ] This explains why the common law has been slow to accord protection to purely economic interests. While this Court has recognized that pure economic loss may be recoverable in certain circumstances, there is no general right, in tort, protecting against the negligent or intentional infliction of pure economic loss. For example, economic loss sustained by a contractor following the negligent destruction of a bridge used to access a jobsite is not a "wrong" in the legal sense, even though the contractor's loss is a reasonably foreseeable consequence of the tortfeasor's conduct.

It seems possible that pure economic loss simpliciter accounts for the overwhelming majority of all loss suffered by one person as a foreseeable and proximate result of the acts or omissions of another . . . . This must necessarily be so in a free market for goods and services, employment and investment, and the continuing struggle for property, profit and advantage. Yet the law does not redress such loss as a matter of course . . . .

[ 20 ] Citing the work of Professor Feldthusen (B. Feldthusen"Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow" (1991), 17 Can. Bus. L.J. 356, at pp. 357‑58; B. Feldthusen, Economic Negligence: The Recovery of Pure Economic Loss (2nd ed. 1989), at para. 200 (currently in its sixth edition)), this Court has applied a classification scheme, organized by reference to how the loss arose, as a framework for the analysis of claims for pure economic loss.

[ 21 ] The current categories of pure economic loss incurred between private parties are, therefore:

1. negligent misrepresentation or performance of a service;
2. negligent supply of shoddy goods or structures; and
3. relational economic loss.

The distinguishing feature among each of these categories is that they describe how the loss occurred. Focussing exclusively upon how the loss occurs can, however, put strain on the analysis by obfuscating both fundamental differences and similarities among cases of pure economic loss.

[ 22 ] Properly understood, then, these categories are simply "analytical tools" that "provide greater structure to a diverse range of factual situations . . . that raise similar . . . concerns" (Martel, at para. 45; Design Services Ltd. v. Canada, 2008 SCC 22, [2008] 1 S.C.R. 737, at para. 31). Organizing cases in this way was and is therefore done for ease of analysis in ensuring that courts are alert to the potentially different considerations at play in different factual scenarios.

[ 23 ] With respect, the appellant's submissions reflect a misunderstanding of the significance of the categories of pure economic loss. The appellant argues that a duty of care in this case "is established through the application of two well‑established categories of recovery for pure economic loss [of] negligent misrepresentation or negligent performance of a service and negligent supply of shoddy goods or structures". But as our analysis will show, these categories do not supply ready‑made duties of care; rather, they are tools that assist courts in identifying whether an existing duty of care applies or whether a novel duty should be recognized.

B. Standard of Review

[ 24 ] Maple Leaf Foods argues that the standard of review to be applied to a motion judge's decision on duty of care is that of correctness. As the question of whether Maple Leaf Foods owed the appellant a duty of care is a question of law, we agree (Galaske v. O'Donnell, 1994 128 (SCC), [1994] 1 S.C.R. 670, at p. 690; Rankin (Rankin's Garage & Sales) v. J.J., 2018 SCC 19, [2018] 1 S.C.R. 587, at para. 17).

[ 25 ] The implications of this standard of review for the duty analysis, and particularly for its constituent inquiry into reasonable foreseeability of injury, was considered by this Court in Stewart v. Pettie, 1995 147 (SCC), [1995] 1 S.C.R. 131:

The question of whether a duty of care exists is a question of the relationship between the parties, not a question of conduct . . . . The point is made by Fleming, in his book The Law of Torts (8th ed. 1992), at pp. 105‑6:

. . . In the first place, the duty issue is already sufficiently complex without fragmenting it further to cover an endless series of details of conduct. "Duty" is more appropriately reserved for the problem of whether the relation between the parties (like manufacturer and consumer or occupier and trespasser) warrants the imposition upon one of an obligation of care for the benefit of the other. This is more a question of policy than fact. [paras. 24‑25]

[ 26 ] The proper inquiry is therefore not into whether the loss suffered by a particular plaintiff could have been foreseen, but whether the type of injury to a class of persons, within which the plaintiff falls, could have been foreseen (Hill v. Hamilton‑Wentworth Regional Police Services Board, 2007 SCC 41, [2007] 3 S.C.R. 129, at paras. 32‑33).

C. The Appellant's Claims

[ 27 ] As we have already recounted, the appellant says that it and other Mr. Sub franchisees are owed a duty of care by the manufacturer Maple Leaf to provide RTE meats fit for consumption, such that they may recover lost profits, sales, capital value and goodwill when their supply is disrupted by the recall of the meat products.

[ 28 ] Respectfully, we have found it somewhat difficult to pinpoint with precision the legal bases on which the appellant grounds this duty. In the circumstances, and to treat as fairly as possible the appellant's claim, we first of all assume that its arguments are concerned with categories of proximate relationships and not categories of pure economic loss (para. 22 above). We will then address whether either of the two relevant categories of proximate relationships establishes a duty of care between Maple Leaf Foods and the Mr. Sub franchisees.

(1) Negligent Misrepresentation or Performance of a Service

[ 29 ] In Livent, this Court restated the analytical framework governing cases of negligent misrepresentation or performance of a service. In doing so, it brought the analytical approach in such cases into accord with the refined Anns/Cooper framework laid out in Cooper. Previously, the duty analysis had been stated in Hercules Managements Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165.

[ 30 ] Under the Anns/Cooper framework, a prima facie duty of care is established by the conjunction of proximity of relationship and foreseeability of injury. As this Court affirmed"foreseeability alone" is insufficient to ground the existence of a duty of care. Rather, a duty arises only where a relationship of "proximity" obtains (Cooper, at para. 22; Livent, at para. 24).

[ 31 ] A party may seek "to base a finding of proximity upon a previously established or analogous category" (Livent, at para. 28). But where no established proximate relationship can be identified, courts must undertake a full proximity analysis in order to determine whether the close and direct relationship ⸺ which this Court has repeatedly affirmed is necessary to support the imposition of a duty of care ⸺ exists.

[ 32 ] In cases of negligent misrepresentation or performance of a service, two factors are determinative of whether proximity is established: the defendant's undertaking, and the plaintiff's reliance (Livent, at para. 30). Specifically"[w]here the defendant undertakes to provide a representation or service in circumstances that invite the plaintiff's reasonable and detrimental reliance, the defendant becomes obligated to take reasonable care" (Livent, at para. 30).

[ 33 ] Taking Cooper and Livent together, then, this Court has emphasized the requirement of proximity within the duty analysis, and has tied that requirement in cases of negligent misrepresentation or performance of a service to the defendant's undertaking of responsibility and its inducement of reasonable and detrimental reliance in the plaintiff.

[ 34 ] In other words, it is the intended effect of the defendant's undertaking upon the plaintiff's autonomy that brings the defendant into a relationship of proximity, and therefore of duty, with the plaintiff. Where that effect works to the plaintiff's detriment, it is a wrong to the plaintiff. Having deliberately solicited the plaintiff's reliance, the defendant cannot thereafter complain that the plaintiff had no right to rely on the defendant's undertaking.

[ 35 ] That entitlement, however, operates only so far as the undertaking goes. As this Court cautioned in Livent"[r]ights, like duties, are . . . not limitless. Any reliance on the part of the plaintiff which falls outside of the scope of the defendant's undertaking of responsibility ⸺ that is, of the purpose for which the representation was made or the service was rendered ⸺ is not induced by the defendant and can therefore generate no right" (para. 35).

[ 36 ] It follows from the foregoing that the allegations advanced on behalf of Mr. Sub franchisees of negligent misrepresentation require us to direct our attention to whether an undertaking of responsibility on the part of Maple Leaf Foods had the effect of inducing foreseeable, reasonable and detrimental reliance on the part of Mr. Sub franchisees.

[ 37 ] The appellant says that Maple Leaf Foods undertook to provide RTE meats fit for human consumption (and, relatedly, that these meats were safe). That this is so is supported, it says, by Maple Leaf Foods' reputation for product quality and safety, and by its public motto "We Take Care" (A.F., at para. 60; see also paras. 53 and 59).

[ 38 ] But as we have also canvassed (paras. 32‑34), it is not enough to show that a defendant made an undertaking. Again, an undertaking of responsibility, where it induces foreseeable and reasonable reliance, is formative of a relationship of proximity between two parties. We must therefore consider whether this undertaking, if made, was made to the Mr. Sub franchisees, in the sense that it was aimed at inducing their reliance, and whether those franchisees actually and reasonably relied on it.

[ 39 ] The reference to "customers" and a "public motto" is, in our view, telling, and supports the Court of Appeal's identification of the scope and purpose of Maple Leaf Foods' undertaking as being "to ensure that Mr. Sub customers who ate RTE meats would not become ill or die as [a] result of eating the meats" (C.A. reasons, at para. 80). That undertaking was not made to Mr. Sub franchisees as part of the food distribution chain; it was made to the public — specifically, to the consumers who would ultimately eat the products. As we have explained, the scope of the duty coincides with the purpose of the undertaking. This undertaking, therefore, cannot ground a duty to Mr. Sub franchisees.

[ 40 ] Further, and in any event, the appellant has failed to establish that Mr. Sub franchisees relied reasonably, or at all, on the undertaking that it says they received from Maple Leaf Foods. Bear in mind that detrimental reliance is manifested by the plaintiff altering its position, thereby foregoing more beneficial courses of action that it would otherwise have taken. But in this case, the appellant was prohibited from altering its position by the terms of its franchise agreement, which required it to purchase exclusively from approved suppliers. It was therefore contractually compelled to take what it says was its position of reliance. It follows that this cannot constitute "reliance" in any meaningful legal sense.

(2) Negligent Supply of Shoddy Goods or Structures

(a) The Correlative Right and Duty of Care in Winnipeg Condominium

[ 41 ] Until this appeal, the sole occasion on which this Court has considered a claim for pure economic loss arising from the negligent supply of shoddy goods or structures is its judgment in Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., 1995 146 (SCC), [1995] 1 S.C.R. 85 (Winnipeg Condominium). It is therefore worth carefully reviewing the liability rule that it established, with attention to the nature of the legal right and its correlative duty of care.

[ 42 ] In Winnipeg Condominium, the plaintiff condominium corporation sued the defendant builder for the cost of repairing exterior four‑inch thick stone cladding on its 15‑storey building. Approximately eight years after construction, the board of directors of the condominium corporation observed that some of the cladding had broken away and that other portions appeared to be in poor condition. Ultimately, large sections of the cladding were found to be inadequately anchored or in imminent danger of falling. The condominium corporation eventually paid for repairs and then sued the defendant.

[ 43 ] On that question, and for the Court, La Forest J. recognized a duty of care based on the reasonable foreseeability of injury to "other persons and property in the community" (para. 21). In doing so, he posited that the presence of danger was the linchpin of the analysis. As he emphasized, the building structure in this case was "not merely shoddy, it was dangerous":

. . . the facts of the present case . . . fall squarely within the category of what I would define as a "real and substantial danger". It is clear from the available facts that the masonry work . . . was in a sufficiently poor state to constitute a real and substantial danger to inhabitants of the building and to passers‑by. The piece of cladding that fell from the building was approximately 20 feet long, 5 feet wide and 4 inches thick. It seems obvious that the inhabitants and passers-by were thus in imminent danger of being killed or seriously injured by subsequent falls of cladding. [para. 27]

Given the "reasonable likelihood that a defect in a building will cause injury to its inhabitants . . . if it poses a real and substantial danger", the Court held that a builder owed a duty to take reasonable care in the design or construction of building structures to avoid creating a real and substantial danger to health and safety (para. 36).

[ 44 ] At first glance, the liability rule in Winnipeg Condominium may appear curious, since it appears as though liability is imposed not in respect of damage that has occurred to the plaintiff's rights, but in respect of a real and substantial danger thereto. As a general principle, there is no liability for negligence "in the air", for "[t]here is no liability for careless conduct which threatens the interests of no one" (Linden, Canadian Tort Law, at pp. 88‑89, cited in Martel, at para. 37). Liability is typically imposed in respect of damage that has occurred, not of damage that has been averted.

[ 45 ] We maintain, however, that, properly understood, the liability rule in Winnipeg Condominium is consonant with that principle. In that case, the Court was clear about the source of the right to which the duty of care corresponds: the plaintiff's rights in person or property (paras. 21, 36 and 42). Where a design or construction defect poses a real and substantial danger to a plaintiff's rights in person or property, the negligently created danger itself amounts to an interference with those rights, even if the danger is discovered and the property is repaired before actual physical damage occurs.

[ 46 ] As we see it, then, recovery for the economic loss sustained in Winnipeg Condominium was founded upon the idea that, in the eyes of the law, the defendant negligently interfered with rights in person or property. We see this as having been La Forest J.'s point in Winnipeg Condominium where he explained:

If a contractor can be held liable in tort where he or she constructs a building negligently and, as a result of that negligence, the building causes damage to persons or property, it follows that the contractor should also be held liable in cases where the dangerous defect is discovered and the owner of the building wishes to mitigate the danger. . . . [para. 35]

In our view, this normative basis for the duty's recognition ⸺ that it protects a right to be free from injury to one's person or property ⸺ also delimits its scope. This is because this basis vanishes where the defect presents no imminent threat.

[ 47 ] The appellant urges us to extend the liability rule in Winnipeg Condominium so as to recognize what La Forest J. refrained from recognizing (para. 41), which is a duty owed to subsequent purchasers for the cost of repairing non‑dangerous defects in building structures and products. But merely shoddy products, as opposed to dangerous products, raise different questions pertaining to issues such as implied conditions and warranties as to quality and fitness for purpose, and not of real and substantial threats to person or property (Winnipeg Condominium, at para. 42). In our view, those claims are better channelled through the law of contract, which is the typical vehicle for allocating risks where the only complaint is of defective quality (Hasegawa & Co. v. Pepsi Bottling Group (Canada) Co., 2002 BCCA 324, 169 B.C.A.C. 261, at paras. 57‑61). Further, and even more fundamentally, such concerns do not implicate a right protected under tort law. As Laskin J.A. explained in Hughes v. Sunbeam Corp. (Canada) Ltd. (2002), 2002 45051 (ON CA), 61 O.R. (3d) 433 (C.A.), at para. 26, in identifying the limits of the duty"compensation to repair a defective but not dangerous product will improve the product's quality but not its safety". Again, we observe that, absent a contractual or statutory entitlement, there is no right to the quality of a bargain.

[ 48 ] It follows that the normative basis for the duty not only limits its scope, but in doing so also furnishes a principled basis for limiting the scope of recovery. As La Forest J. explained, the potential injury to persons or property grounds not only the duty but also one's entitlement to "the cost of repairing the defect", that is, the cost of averting the danger posed by the defect to one's rights (Winnipeg Condominium, at para. 35). The extent of the danger thus sets the scope of recovery, since it is the danger — not some other interest of the plaintiff — that is the source of the right.

[ 49 ] We do agree with the appellant, however, that this same normative force of protecting physical integrity in the face of a real and substantial danger can apply to products other than building structures ⸺ that is, to goods. That said, in applying the Winnipeg Condominium liability rule to goods, it must be borne in mind that, properly understood, the liability rule protects the right of persons to be free from injury to person or property from the defendant's negligently manufactured goods. Applying the liability rule to goods therefore requires asking: what it means for goods to be "repaired" and whether goods can be discarded as a means of averting the danger to person or property.

[ 50 ] It follows that where it is feasible for the plaintiff to simply discard the defective product, the danger to the plaintiff's rights, along with the basis for recovery, falls away. The significance of this point is perhaps best appreciated by recalling that, in Winnipeg Condominium, La Forest J. cited an argument made by Lord Keith of Kinkel in D & F Estates Ltd. v. Church Commissioners for England, [1988] 2 All E.R. 992 (H.L.), at p. 1006, that the option to discard a defective building was "an unrealistic choice":

. . . it is based upon an unrealistic view of the choice faced by home owners in deciding whether to repair a dangerous defect in their home. In fact, a choice to "discard" a home instead of repairing the dangerous defect is no choice at all: most home owners buy a home as a long term investment and few home owners, upon discovering a dangerous defect in their home, could or would decide to abandon it. [Winnipeg Condominium, at para. 35]

[ 51 ] Whether, then, one is considering defects in a building structure or a good, it is the feasibility of discarding the thing as the means of averting the danger which will determine whether the plaintiff's loss is recoverable. We agree that few homeowners or owners of other kinds of building structures can reasonably remove the real and substantial danger by discarding their home. This is why the cost of "repairing" (i.e., averting the danger with respect to) such a building structure will typically be recoverable.

[ 52 ] An instructive example of a dangerously defective good which could not be feasibly discarded is provided by Plas‑Tex, where the defendant Dow Chemical sold polyethylene resin to the plaintiffs, knowing that it would be used in the construction of 3,000 miles of pipeline (1,700 miles of which was buried underground) used to transport natural gas to consumers in rural Alberta. Dow Chemical knew its resin was defective when it sold it. The defective resin compromised the integrity of the pipeline, which exploded in certain segments. The Court of Appeal of Alberta held that Dow owed a duty "to take reasonable care not to manufacture and distribute products which, due to their defective nature, present a real and substantial danger to persons or property of others".

[ 53 ] There will, of course, be other goods containing defects which present real and substantial dangers, and to which La Forest J.'s observations in Winnipeg Condominium about the impossibility of discarding homes and other building structures may apply. To be clear, this is a high threshold that we do not anticipate will be regularly met. The product must present a real and substantial danger to the plaintiff's rights, and it must not be feasibly discardable.

[ 54 ] The foregoing kind of good stands in contrast to two other kinds of goods. First, and more commonly, there is the good whose dangerous defect can realistically be addressed by discarding it. This will, we expect, apply to most defective consumer goods. Again, the liability rule in Winnipeg Condominium protects a right to be free of a negligently created danger to one's person or property. If the plaintiff can avert that danger by discarding the defective good, there is no legal wrong in the first place. As stated, we do not infer from Rivtow that those who supply dangerous products owe a duty to compensate intermediaries for the economic losses caused by the recall of those products: the recall, not the negligence, is the cause of those losses.

[ 55 ] Secondly, there is the kind of good like the RTE meats, for which "repair" is simply not possible. The good must, therefore, also be discarded. While in such circumstances the plaintiff may recover any costs of disposal, that is the extent of its possible recovery under this liability rule. It must be remembered that, because the right protected by the liability rule in Winnipeg Condominium is the right to be free from injury to one's person or property, the danger posed to that right measures the limit of recovery. Where the only way to address the danger is to discard the product, the plaintiff has no right to more than the cost of discarding it. The "cost of repairing the defect", in such circumstances, is only the cost of disposing of the good.

[ 56 ] We add this. We find ourselves in respectful disagreement with our colleague's view that Laskin J.'s dissenting reasons in Rivtow"which were explicitly adopted in Winnipeg Condominium, at para. 36, suggest that additional economic losses may be recoverable under this class of duty" (para. 125). This is significant, she explains, because Laskin J. would have found that the plaintiff could recover not just the costs of repairing the defective crane, but also the consequential economic losses associated with having to take the crane out of service during the busy fishing season in order to repair it.

(b) Whether the RTE Meats Created a Real and Substantial Danger to the Appellant

[ 57 ] In our view, the appellant's claim based on negligent supply of goods must fail for two reasons. First, a duty of care in respect of the negligent supply of shoddy goods or structures is predicated, as we have explained, upon a defect posing a real and substantial danger to the plaintiff's rights in person or property. In this case, any danger posed by the RTE meats was to consumers, not to the Mr. Sub franchisees. The franchisees were intermediaries in the supply chain who used and sold the meats, and their claim is for economic loss. Their persons and their property were not put at risk.

[ 58 ] This leads us to our second reason why the appellant's claim must fail. While the RTE meats may have posed a real and substantial danger to consumers when they were manufactured, any such danger evaporated when they were recalled and destroyed. In other words, their dangerousness was in their latency (Cardwell v. Perthen, 2007 BCCA 313, 240 B.C.A.C. 239, at paras. 47‑50); their recall extinguished that danger. The franchisees' alleged economic losses are therefore not the cost of averting a real and substantial danger to their rights. They are the consequences of the recall, not the product's defect.

(c) Whether the Parties Were in a Relationship of Proximity

[ 59 ] Nonetheless, even if the RTE meats had posed a real and substantial danger within the meaning of Winnipeg Condominium to Mr. Sub franchisees' rights and had not been discarded, our analysis would not end here. In Winnipeg Condominium, the duty of care analysis was undertaken in accordance with the then‑prevailing test for recognizing a duty of care. That test has since been refined by this Court in Cooper, in a way that gave considerably more prominence to the element of proximity.

[ 60 ] But just as the duty analysis to be applied in cases of alleged negligent misrepresentation and performance of a service had to be adjusted in Livent to account for its refinement in Cooper in the form of the Anns/Cooper framework, so too must the duty analysis in cases of negligent supply of shoddy goods or structures conform to that framework.

[ 61 ] As we will explain, this provides a further reason to dispose not only of the appellant's claim under Winnipeg Condominium, but also of the arguments favouring recognition of a novel duty of care.

(i) Proximity

[ 62 ] As the Court explained in Livent (albeit in the context of negligent misrepresentation or performance of a service), proximity ⸺ which is "a distinct and more demanding hurdle than reasonable foreseeability" (para. 34) ⸺ informs the foreseeability inquiry, and should therefore be considered prior to assessing foreseeability of injury. As Professor Stapleton has noted"no one seriously contests that this limitation [on recovery for pure economic loss] exists; the debate is about its rationale and precise extent" (Stapleton, at p. 249).

[ 63 ] Assessing proximity requires asking whether, in light of the nature of the relationship at issue (Livent, at para. 25), the parties are in such a "close and direct" relationship that it would be "just and fair having regard to that relationship to impose a duty of care in law" (Livent, at para. 25, citing Cooper, at paras. 32 and 34). Relevant factors include "the expectations, representations, reliance, and the property or other interests involved" (Cooper, at para. 34; Livent, at para. 29).

[ 64 ] First, the court must ask whether proximity can be made out by reference to an established or analogous category of proximate relationship (Livent, at paras. 26‑28). This question comes first because "[i]f a relationship falls within a previously established category, or is analogous to one, then the requisite close and direct relationship is taken to exist" (Livent, at para. 26), obviating the need for a full proximity analysis.

[ 65 ] In determining whether proximity can be established on the basis of an existing or analogous category"a court should be attentive to the particular factors which justified recognizing that prior category in order to determine whether the relationship at issue is, in fact, truly the same as or analogous to that which was previously recognized as proximate" (Livent, at para. 27).

[ 66 ] Secondly, if the court determines that proximity cannot be based on an established or analogous category of proximate relationship, then it must conduct a full proximity analysis (Livent, at para. 29). In making this assessment, courts must examine all relevant factors present in the relationship between the plaintiff and the defendant ⸺ which may include "expectations, representations, reliance, and the property or other interests involved" (Cooper, at para. 34; Livent, at para. 29) ⸺ in order to determine whether the nature of the relationship between the parties is such that it would be just and fair to impose a duty upon the defendant.

[ 67 ] In a case of negligent supply of shoddy goods or structures, the claim may arise in circumstances in which the parties could have protected their interests under contract. Even without being in privity of contract, the parties may nonetheless be "linked by way of contracts with a middle party", as Maple Leaf Foods and the Mr. Sub franchisees were linked through their respective contracts with Mr. Sub. The absence of contractual privity does not per se preclude a finding of proximity. However, as we shall discuss, the existence of a contractual matrix may affect the question of proximity.

[ 68 ] Given the possibility of an existing allocation of risk by contract, a proximity analysis must account for two concerns. First, the reasonable availability of adequate contractual protection within a commercial relationship, even a multipartite relationship, from the risk of loss is an "eminently sensible anti‑circumvention argument" that militates against imposing a tortious duty of care in addition to contractual duties (Design Services, at para. 46). To find proximity ⸺ and therefore a duty of care ⸺ in such circumstances would allow a plaintiff to avoid the constraints of its contractual allocation of risk by suing in tort.

[ 69 ] This Court recognized as much in Design Services, where the defendant had launched a design‑build tendering process for the construction of a building. The plaintiff subcontractors and the defendant were not in privity of contract, but each were linked to the other through a bid submitted by Olympic Construction Ltd., a prime contractor. Olympic won the tendering process, but the defendant then awarded the contract to a different entity in breach of Contract A (the contract arising from submitting an accepted bid in a tendering process). The plaintiff subcontractors, who could not sue the defendant in contract because they were not parties to Contract A, claimed that the defendant owed them a duty of care in tort.

[ 70 ] For this Court, Rothstein J. declined to impose a duty of care, because the plaintiffs could have arranged their affairs so as to submit a joint bid with Olympic (thereby making them a party to "Contract A" and entitling them to sue the defendant in contract for irregularities in the tendering process), yet had chosen not to do so. He considered, at para. 46, that imposing "a duty of care, alongside the contractual duty owed to Olympic, would allow the [plaintiffs] to circumvent a contractual arrangement which they did not chose [sic] to enter into directly".

[ 71 ] The second concern is related to the first. If the possibility of reasonably addressing risk through a contractual term, even within a chain of contracts, presents a compelling argument against allowing a plaintiff to circumvent a contractual arrangement by seeking recognition of a duty of care in tort law, it follows that where the parties (or some of them) have actually so addressed that risk by contract, the argument against imposing a concurrent duty of care in tort is compelling indeed. As this Court recognized in Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., 1997 307 (SCC), [1997] 3 S.C.R. 1210, at para. 39:

In my view, the observation of Professor Lewis N. Klar (Tort Law (3rd ed. 2003), at p. 201) — that the ordering of commercial relationships is usually in the bailiwick of the law of contract — is particularly apt in this type of case. To conclude that an action in tort is appropriate when commercial parties have deliberately arranged their affairs in contract to allocate risk between themselves raises serious concerns about circumventing that deliberate choice. [para. 39]

[ 72 ] All this is not to say that contractual silence on a matter will automatically foreclose the imposition of a duty of care. Contractual silence on certain matters is inevitable, since it is impractical for even the most sophisticated parties to bargain about every foreseeable risk (Stapleton, at p. 287). Our point, rather, is that, in the case of commercial parties operating within a multipartite contractual arrangement, the question of whether the plaintiff could reasonably have protected itself by contract is highly relevant to the proximity analysis. As Design Services makes plain, the availability of an adequate contractual remedy that has not been taken up is incompatible with a finding of proximity between sophisticated commercial parties.

[ 73 ] In sum, under the Anns/Cooper framework and its rigorous proximity analysis, the determination of whether a claim of negligent supply of shoddy goods or structures is supported by a duty of care between the plaintiff and the defendant requires consideration of "expectations, representations, reliance, and the property or other interests involved" (Cooper, at para. 34; Livent, at para. 29), and, for the reasons we have identified, this must include an accounting for the contractual matrix linking the parties.

(ii) Application

[ 74 ] As indicated in our review of Livent, the question of whether the parties were in a proximate relationship follows a two‑step analysis. Accordingly, we first address the appellant's arguments regarding an analogous category of proximity.

1. Analogous Category of Proximity

[ 75 ] The appellant argues that appellate and trial level case law support recognition of a duty of care owed by Maple Leaf Foods to Mr. Sub franchisees "for economic losses arising out of negligent manufacture and supply of a dangerous product" — a duty that, as we have already explained, is grounded in the liability rule recognized in Winnipeg Condominium. It relies on Plas‑Tex, Tanshaw, and Country Style.

[ 76 ] In Plas‑Tex, as already recounted, dangerously defective resin was knowingly supplied by the defendant to the plaintiffs. The pipes exploded, necessitating repairs and causing the plaintiff to suffer significant business losses. The Court of Appeal of Alberta held that Dow owed a duty "to take reasonable care not to manufacture and distribute products which, due to their defective nature, present a real and substantial danger to persons or property of others".

[ 77 ] This is not analogous to the basis for the duty which the appellant says was owed by Maple Leaf Foods to Mr. Sub franchisees. The post‑delivery circumstances of Plas‑Tex are entirely different than the circumstances of the appellant's claim of interrupted supply. Specifically, the defect in the resin created actual physical damage, such that the plaintiffs had no feasible choice but to undertake significant and costly repairs to their pipeline. It did not merely prompt a recall that, in turn, led to business losses.

[ 78 ] Nor is Tanshaw of assistance to the appellant. There, the "Back Alley" night club, owned by the plaintiff numbered company, held a "foam party", an event at which bubbles were dispersed onto the dancefloor so that patrons could dance in the foam. When an altered chemical composition of the product used by the manufacturer Tanshaw to produce the bubbles came into contact with patrons' skin, it caused chemical burns. As a result, the night club's business declined, giving rise to the plaintiff's claim against the manufacturer for its economic losses.

[ 79 ] As in Plas‑Tex, the fact that a dangerous product was actually supplied and that it caused physical injury, albeit to third parties, tends to undermine the appellant's position that this case is analogous.

[ 80 ] Further, and in our respectful view, the trial judge in Tanshaw erred in her conclusion that the manufacturer owed a duty of care to the nightclub, or at least in relying upon the basis she identified for doing so. Correctly noting that Donoghue v. Stevenson stands for the proposition that "the manufacturer or distributor of a product that is inherently or potentially dangerous is under a duty of care to the ultimate consumer", she concluded that this extended to a duty owed to the nightclub, as an "intermediary" that had relied on the product's safety when it offered the product to its patrons.

[ 81 ] The liability rule in Donoghue v. Stevenson, however, governs the relationship between manufacturers and the ultimate consumer who is physically injured by the manufacturer's negligence; it does not speak to whether a manufacturer owes a duty to an intermediary for economic losses, even where those losses are alleged to arise from that same product's dangerousness.

[ 82 ] Finally, Country Style is a case concerning misrepresentations made by a landlord about a commercial space leased by the franchisor who in turn leased to the plaintiff franchisee in anticipation of using the space to house a donut franchise. The landlord held out that it would build according to a specific site plan and then proceeded to make changes. The franchisee alleged that these were misrepresentations made for the purpose of inducing it to enter the sublease arrangement and that, in reliance upon those representations, it had entered the sublease. This case involved negligent misrepresentation made directly to the franchisee, and therefore turned upon an undertaking made to the plaintiff and detrimental reliance by the plaintiff ⸺ precisely the kind of conduct that grounds a duty of care in cases of negligent misrepresentation or performance of a service.

[ 83 ] Having concluded that proximity cannot be established by reference to a recognized category of proximate relationship, we must now conduct a full proximity analysis.

2. Full Proximity Analysis

[ 84 ] It follows ⸺ not only from Cooper's emphasis upon proximity as a distinct inquiry from foreseeability, but also from Livent's direction that proximity is to be assessed by examining the nature of the relationship itself ⸺ that the defendant's ability to reasonably foresee injury to a plaintiff is insufficient to ground a finding of proximity. The various matters identified by the appellant — such as Maple Leaf Foods' knowledge of and direct communications with franchisees, its "We Take Care" motto, its alleged expertise in meat processing, the alleged reputational nexus between Mr. Sub and Maple Leaf Foods, the exclusivity arrangement ⸺ these are matters of foreseeability, not proximity.

[ 85 ] To the extent that these considerations are possibly relevant to the duty analysis, they go not to proximity, but to reasonable foreseeability of injury. But even when they are so considered, it bears recalling that, in Livent, this Court clarified that an injury or loss will be considered to be "reasonably foreseeable" only where it falls within the ambit of the risk created by the defendant's negligence (para. 27), and that in turn depends upon the defendant's undertaking (in cases of negligent misrepresentation) or the nature of the defect (in cases of negligent supply of shoddy goods).

[ 86 ] Here, then, we recall that the appellant is a corporation that entered into a franchise agreement with Mr. Sub, which in turn was party to an exclusive supply agreement with Maple Leaf Foods. Taken together, these agreements required the appellant, and all Mr. Sub franchisees, to purchase only such RTE meats as were manufactured by Maple Leaf Foods. Two key provisions of the franchise agreement are relevant to understanding this commercial arrangement:

6.2 Authorized Products and Services

The Franchisee acknowledges that it is in the interest of the Franchisee, the Franchisor and all other Mr. Sub Restaurant Franchisees that the uniform standards, methods, procedures, techniques and specifications of the System be fully adhered to by the Franchisee. Accordingly, the Franchisee shall offer for sale from the Premises only such Products, Ingredients, services and Equipment as may from time to time be authorized in writing by the Franchisor, but only in the manner set out in the Operating Manual or as otherwise authorized by the Franchisor.

The Franchisee further agrees to purchase or lease, as applicable, all Products, Ingredients, Equipment, Supplies and other items exclusively from the Franchisor or from sources or suppliers approved or designated in writing by the Franchisor (which sources or suppliers may include Affiliates of the Franchisor) at prices and charges, and upon the terms and conditions as established from time to time by the Franchisor.

6.4 Group Purchasing and Rebates

The Franchisee shall have the right to participate, on the same basis as other Mr. Sub Restaurant franchisees, in any group purchasing programs for Products, Ingredients, Equipment, Supplies, services and other items which the Franchisor may from time to time use, develop, sponsor or provide.

In short, franchisees were contractually restricted to using and selling only products authorized by Mr. Sub and supplied exclusively by Mr. Sub or by sources approved by Mr. Sub. As to those sources, the exclusive supply agreement between Maple Leaf Foods and Mr. Sub provided:

Product Listing

MR. SUB agrees to honor the exclusive supplier status of Maple Leaf Foodservice on the 14 core menu items for the 3 year period − January 1, 2006 to December 31, 2008. Maple Leaf Foodservice obligations hereunder shall be dependent upon maintaining the exclusive supply status.

List of Core Menu Items

The foregoing Menu items shall be exclusively supplied by Maple Leaf Foodservice.

Maple Leaf Foodservice will ensure that Mr. Sub will be offered "best pricing" on any exclusive products. For the purposes hereof "best pricing" shall be determined with reference to third parties acquiring similar goods (including similar quality and mix of goods) in similar quantities, for direct re‑sale by them to consumers by means of a fast food franchise operation.

Continued Superior Customer Services

Maple Leaf Foodservice will continue to provide MR. SUB with the following elements of superior Customer Service:

‑1‑800 line available to Franchisees on a National scale.

‑National Sales representation country wide.

‑Fast, accurate and timely handling of inquiries regarding product ingredients, handling, storage and quality.

‑Direct Franchisee contact.

[ 87 ] Our colleague relies on such terms to support a finding of proximity between Maple Leaf Foods and the Mr. Sub Franchisees (para. 138). But a finding of proximity does not depend on the existence of certain contractual terms that make specific reference to one party or another. In a multipartite commercial relationship such as this, the relevant inquiry is rather into the commercial purpose of those terms and whether, taken together with all the other features of the contractual matrix, they are sufficient to constitute a relationship of proximity.

[ 88 ] The appellant says that, as a result of the terms of the franchise agreement, it and the other franchisees were "vulnerable" and unable to protect themselves from Maple Leaf Foods' negligence. "In the franchisee‑franchisor context governed by a standard form franchise agreement", it argues, it could not protect itself by negotiation, or at least was not in a position to bargain for contractual protection from the supply failure that resulted from Maple Leaf Foods' recall of the tainted RTE meats. The result is that it could not realistically seek contractual redress from Maple Leaf Foods.

[ 89 ] Of course, like any franchisee, the appellant also assumed certain disadvantages by operating through a franchise, all of which are typically necessary to securing the advantages. For example, the success of the system of operations and the benefit of the franchisor's buying power depend upon maintaining a degree ⸺ and, depending upon the franchise, quite a significant degree ⸺ of uniformity in the products sold, which necessarily requires that all franchisees use approved products. None of this makes the franchisees particularly vulnerable; it is simply the result of a commercial arrangement that the franchisees chose, and which presumably brought advantages to them. Nor do franchisees lack the ability to negotiate their agreements: as we have already noted, there is no finding in this case that the appellant or the other Mr. Sub franchisees could not have insisted on more favourable terms.

[ 90 ] A finding of proximity between Mr. Sub franchisees and Maple Leaf Foods would sit uneasily with this state of affairs, linked as these parties were through Mr. Sub by a chain of contracts that reflected the typical arrangement between franchisee, franchisor and exclusive supplier. The appellant was not a consumer, but a commercial actor whose loss was the type of purely economic loss that is regularly sustained by commercial parties in a supply chain and is typically addressed by them through contract. The practical effect of imposing a duty of care in these circumstances would be, essentially, to impose Maple Leaf Foods into a direct contractual relationship with franchisees as third party beneficiaries of the supply contract between it and Mr. Sub. The parties made no such arrangement, as was their right, and tort law should not be used to impose it upon them.

[ 91 ] While this is sufficient for us to conclude that the Mr. Sub franchisees and Maple Leaf Foods were not in a relationship of proximity, a related consideration also furnishes an answer to our colleague's concern for vulnerability arising from the commercial arrangement linking Maple Leaf Foods, Mr. Sub and its franchisees. As already mentioned, the franchise agreement included a clause which entitled franchisees to request the use of alternative suppliers:

If the Franchisee wishes to purchase Products, Ingredients, Equipment or Supplies from sources or suppliers other than those approved or designated in writing by the Franchisor, or wishes to offer for sale products or services that have not been previously authorized in writing by the Franchisor, the Franchisee shall give Notice to the Franchisor of such request, together with specifications and other pertinent data with respect to the new products, services, and sources, as required by the Franchisor. The Franchisee acknowledges that the Franchisor shall have the absolute right to approve or disapprove the proposed changes, which right shall be exercised within 30 days of receipt of such Notice.

[ 92 ] It is not disputed that the appellant did not avail itself of this option for obtaining alternative supply sources, even after the listeria outbreak and the voluntary recall of RTE meats (Mitropoulos Cross‑Examination, R.R., at p. 90).

[ 93 ] We acknowledge that Mr. Sub retained discretion to deny any such request, but we simply cannot infer that Mr. Sub would likely have done so (Karakatsanis J.'s reasons, at paras. 103 and 143). Having been entirely released from its obligations towards Maple Leaf Foods in September 2008 some two weeks after the recall, Mr. Sub was no longer under a duty to maintain the exclusive supply arrangement. More to the point, we cannot infer that Mr. Sub would not reasonably exercise its discretion so as to protect its franchisees' interests where that protective exercise conflicted with no other term of its agreement.

[ 94 ] If the vulnerability that is typical in a multipartite contractual arrangement such as this is insufficient to ground a duty of care, it is a fortiori inadequate where an available means under the terms of that arrangement for avoiding or mitigating that vulnerability was not pursued. In this regard, the appellant's position is comparable to that of the plaintiffs in Design Services, who could have but did not avail themselves of a means of contractual protection that was available to them.

3. Novel Duty of Care

[ 95 ] In any event, and as we have explained, the appellant cannot show that it and other Mr. Sub franchisees were in a relationship of proximity with Maple Leaf Foods. That is fatal not only to its argument under Winnipeg Condominium, but also to the argument for recognition of a novel duty in these circumstances, since the novel duty also depends upon proximity being established.

IV. Conclusion

[ 96 ] We would dismiss the appeal, with costs.

Dissenting Reasons

Karakatsanis J. (dissenting) —

I. Introduction

[ 97 ] This appeal asks whether franchisees, bound by their franchisor to use an exclusive supplier for products that are integral to their business, are able to recover the economic losses they suffered as a result of that supplier putting unsafe goods into the market.

[ 98 ] The appellant, 1688782 Ontario Inc., is a former franchisee of the Mr. Submarine sandwich restaurant chain. The franchisor, Mr. Sub, entered into an agreement with Maple Leaf Consumer Foods Inc. (together, with Maple Leaf Foods Inc., the respondents), making Maple Leaf the exclusive supplier of certain menu items. At the relevant time, Mr. Sub had roughly 430 franchisee locations across Canada.

[ 99 ] In 2008, Maple Leaf issued a nation-wide recall of several products, including two used by Mr. Sub franchisees, after some of its products and production lines tested positive for listeria. During the recall, Mr. Sub was publicly associated with Maple Leaf and the franchisees' businesses declined. The appellant filed and obtained certification of a class action against Maple Leaf.

[ 100 ] This is an appeal from a summary judgment motion to determine whether a duty of care existed between Maple Leaf and the Mr. Sub franchisees. The ultimate success of the franchisees in proving their claim in negligence is not at issue before this Court.

[ 101 ] I agree with Brown and Martin JJ. that the main thrust of the franchisees' claim does not fall within an existing category of economic loss or an established or analogous relationship of proximity. However, I would find that it is just and fair to impose a novel duty of care on Maple Leaf in these circumstances and would, accordingly, allow the appeal.

II. Facts

[ 102 ] Maple Leaf is a manufacturer and processor of food products, including "ready-to-eat" sliced meats and deli meats produced for national distribution in retail and food service operations. In late 2005, Maple Leaf entered into a foodservice partnership agreement with Mr. Sub in which Mr. Sub agreed to purchase 14 core menu items, including sliced meats, exclusively from Maple Leaf for a three-year period.

[ 103 ] The appellant was a franchisee of Mr. Sub and ran a family-operated location selling sandwiches and other items. In 2006, it renewed its franchise agreement with Mr. Sub for a five-year term. The franchise agreement was a standard form agreement used for all Mr. Sub franchisees. The agreement required the franchisees to purchase all products from Mr. Sub or from Mr. Sub's designated supplier — Maple Leaf. It did not give the franchisees any contractual rights against Maple Leaf directly. While the franchise agreement technically allowed franchisees to request approval for alternative suppliers, such a request was subject to Mr. Sub's "absolute right to disapprove" within 30 days of receipt.

[ 104 ] Mr. Sub specified to the franchisees that Maple Leaf would be the exclusive provider of certain ready-to-eat meats for their restaurants. The franchisees purchased their meats through a distributor and thus lacked contractual privity with Maple Leaf. While they were linked indirectly through separate contracts, Maple Leaf and the franchisees had a direct commercial relationship: Maple Leaf provided a 1‑800 phone line for franchisees and had direct contact with them through its national account manager.

[ 105 ] On August 16, 2008, the Canadian Food Inspection Agency (CFIA) informed Maple Leaf that one of its products had tested positive for listeria. On August 17, a "Health Hazard Alert" was issued by the CFIA and Maple Leaf issued a nation-wide press release and recall of two products (neither used by the franchisees). On August 19, the CFIA informed Maple Leaf that additional products and production lines had tested positive, and on August 22, Maple Leaf issued a voluntary recall of these products, including roast beef and corned beef used by Mr. Sub franchisees.

[ 106 ] In the days following the expanded recall, Maple Leaf instructed distributors to visit Mr. Sub franchisee locations to remove and destroy the potentially contaminated meats. Six to eight weeks passed before the roast beef and corned beef were replaced by a different supplier, with the help of Maple Leaf.

[ 107 ] During the recall, Mr. Sub and other restaurants were publicly associated with Maple Leaf in news stories and in the CFIA's "Health Hazard Alerts", but Mr. Sub was unique among submarine sandwich restaurants for being identified as a purveyor of Maple Leaf products. Eventually, the franchisor Mr. Sub and Maple Leaf entered into a Supply and Service Indemnification Agreement, through which Maple Leaf paid Mr. Sub $6 million.

[ 108 ] None of the appellant's patrons or employees were harmed by the affected products, but the appellant alleges that a significant decrease in sales and profits began during and continued after the listeria outbreak. The appellant closed its business in 2010.

III. Procedural History

[ 109 ] The appellant commenced a class action against Maple Leaf on behalf of the franchisees of the other 424 Mr. Sub restaurants across Canada. The action claims damages for disposal and destruction of the "ready-to-eat" meats; clean-up and mitigation costs; loss of past and future sales and profits, goodwill and capital value of their franchise businesses; and loss of the opportunity to sell and/or renew their franchise agreements.

[ 110 ] Leitch J. certified the action as a class proceeding with the appellant as the representative plaintiff (2016 ONSC 4233). In these reasons, Leitch J. concluded that it was not plain and obvious that the claim did not fall within a recognized duty of care or that it could not meet the requirements of the test in Anns v. Merton London Borough Council, [1978] A.C. 728, as refined in Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537.

A. Ontario Superior Court of Justice, No. 60680CP (November 18, 2016), Leitch J.

[ 111 ] Leitch J. dismissed Maple Leaf's motion for summary judgment and held in the franchisees' favour (S.C.J. reasons (A.R., vol. I, at p. 45)). She found that Maple Leaf owed a duty of care to the franchisees in relation to the production, processing, sale and distribution of the meats, and that Maple Leaf further owed a duty of care with respect to negligent misrepresentation.

B. Court of Appeal for Ontario, 2018 ONCA 407, 140 O.R. (3d) 481, Sharpe, Rouleau and Fairburn JJ.A.

[ 112 ] The Court of Appeal allowed Maple Leaf's appeal. With regard to the alleged duty to supply a product fit for human consumption, Fairburn J.A., writing for the court, held that any duty aimed at public health was owed to the franchisees' customers, not the franchisees, and that the franchisees and Maple Leaf did not have the requisite proximity to ground a duty. Regarding the duty of care in relation to negligent misrepresentation, the Court of Appeal concluded that Leitch J. had erred in failing to consider the scope of the proximate relationship between the parties, as required under Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855.

[ 113 ] Fairburn J.A. noted Maple Leaf's acknowledgment that the franchisees had a de minimis claim for disposal, destruction and clean-up costs and that it did not contest that portion of Leitch J.'s order. She therefore set aside Leitch J.'s order finding a duty of care, except as it related to those costs.

IV. Analysis

[ 114 ] In these reasons, I consider one issue: did Maple Leaf owe a duty of care to the franchisees such that some or all of their economic losses are recoverable in tort?

A. Recovery of Economic Losses in Negligence

[ 115 ] The franchisees do not allege that they suffered any physical injury or damage to their property due to Maple Leaf's negligence. Their claim is thus for recovery of their "pure" economic loss.

[ 116 ] Historically, the common law did not allow for recovery of losses in negligence that were not consequent to physical injury or property damage. This so-called "exclusionary rule" against economic loss is often traced to Cattle v. Stockton Waterworks (1875), L.R. 10 Q.B. 453. Since Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465 (H.L.), however, courts have recognized that this rule is subject to exceptions. These exceptions concern categories of duty of care relationships in which economic loss may be actionable.

[ 117 ] Since Hedley Byrne, Canadian courts have repeatedly affirmed that there is no bar or broad exclusionary rule against recovery of economic loss for negligence in Canada (see, e.g., Rivtow Marine Ltd. v. Washington Iron Works, 1973 6 (SCC), [1974] S.C.R. 1189; Winnipeg Condominium; Martel; Design Services). Rather, the question is always whether the defendant owed the plaintiff a duty of care.

[ 118 ] Nonetheless, this Court has affirmed that"[a]s a cause of action, claims concerning the recovery of economic loss are identical to any other claim in negligence in that the plaintiff must establish a duty, a breach, damage and causation" (Design Services, at para. 25).

[ 119 ] While many harms may be reasonably foreseeable to someone in the defendant's position, what is ultimately recoverable will be determined by the content of the duty, taking into account both foreseeability and proximity. Cooper did not, however, restrict recovery of economic loss to the three existing categories of pure economic loss — negligent misrepresentation or performance of a service, negligent supply of shoddy goods or structures, and relational economic loss.

[ 120 ] I agree with Brown and Martin JJ. that while this Court has identified specific types of economic losses in negligence, it is the duty of care — and not the category of economic loss — that dictates whether economic loss may be recoverable in negligence.

[ 121 ] In cases engaging a novel relationship and requiring a full Anns/Cooper analysis, courts should look to decided cases for guidance but should be cautious of reflexively relying on oft-repeated policy considerations as conventional wisdom without examining whether they actually apply in the case at hand.

B. Existing Categories of Economic Loss

[ 122 ] I agree with Brown and Martin JJ. that the appellant has not identified an undertaking that could form the basis for a duty to the franchisees within the category of negligent misrepresentation that encompasses the losses they are claiming. The Maple Leaf brand or motto relied upon by the appellant speaks to consumers, not to the franchisees, who are commercial entities that purchased products in a supply chain. There is no undertaking that would have induced the franchisees' reasonable detrimental reliance.

[ 123 ] With regard to the negligent supply of shoddy or unsafe goods, I would find that the nature and scope of the franchisees' main allegations are not well-suited to this category of economic loss and that this category has limited value as an analytical tool.

[ 124 ] While Winnipeg Condominium offers this Court's most recent discussion of economic loss arising from the negligent supply of shoddy goods and structures, I would caution against collapsing the entirety of this type of economic loss into the specific liability rule recognized in Winnipeg Condominium, which must be viewed in its proper doctrinal context. As discussed above, the liability rule was established in the context of the then‑prevailing test for recognizing a duty of care, which has since been refined.

[ 125 ] Indeed, Laskin J.'s dissenting reasons in Rivtow, which were explicitly adopted in Winnipeg Condominium, at para. 36, suggest that additional economic losses may be recoverable under this class of duty. In Rivtow, Laskin J. explained that a manufacturer who discovers a defect in its product that may cause harm should immediately warn the users of those products, and if necessary, recall the product. If it fails to do so and economic losses result, the manufacturer may be liable for those losses.

[ 126 ] I agree with Brown and Martin JJ. that the foundation of this class of duty is a manufacturer or builder's duty to avoid danger towards the users of their product or inhabitants of their building. This was the driving force animating both Winnipeg Condominium and Rivtow, and it remains true. However, the mere existence of this duty towards users and consumers does not limit economic loss recovery to consumers only.

[ 127 ] As Leitch J. found, the contaminated Maple Leaf meats posed a "foreseeable real and substantial danger" to the health and safety of consumers (S.C.J. reasons, at para. 53 (A.R., vol. I, at p. 58)). And, as the Court of Appeal noted"there was no question that [Maple Leaf] owed a duty to its direct customers to supply products fit for human consumption" (C.A. reasons, at para. 62). The duty towards consumers existed.

[ 128 ] However, while the franchisees' costs in eliminating the danger could fall within a duty under this category of economic loss, the category does not capture the thrust of their claim. The economic losses claimed in this case flowed largely from the public health crisis and associated reputational damage that arose from Maple Leaf's recall, not merely from the costs of discarding the tainted product or replacing it during the recall.

[ 129 ] I therefore find that the category of negligent supply of shoddy goods has little value as an analytical tool. But the fact that there are differences between the franchisees' circumstances and those in Rivtow and Winnipeg Condominium does not prevent me from recognizing a novel duty of care.

C. Novel Duty of Care

[ 130 ] As discussed above"Canadian law recognizes that new categories where a duty of care is recognized may be established" by applying the analysis set out in Anns and Cooper (Design Services, at para. 26). Here, Maple Leaf knowingly acted as the exclusive supplier for Mr. Sub's franchisee network, entering into a close commercial relationship with the franchisees. Whether it is just and fair to impose a duty of care in these circumstances is the question.

(1) Stage One: Prima Facie Duty of Care

(a) Foreseeability

[ 131 ] As mentioned"[t]he usual indication of proximity is foreseeability" (Design Services, at para. 49), and foreseeability can therefore be a useful starting point in assessing whether a novel duty of care exists. The reasonable foreseeability test asks whether a reasonable person in the defendant's position would foresee that the impugned act or omission could injure the plaintiff or a class of persons to which the plaintiff belongs (Cooper, at para. 30).

[ 132 ] Maple Leaf had been in a commercial relationship with Mr. Sub since 1989. When it entered into the 2005 food service partnership agreement as an exclusive supplier for Mr. Sub, it knew that Mr. Sub operated in a franchise structure. The partnership agreement contemplated direct contact with franchisees through a 1‑800 phone line.

[ 133 ] Importantly, Maple Leaf also knew about the centrality of its products to the franchisees' business: the national account manager was aware that these meats were an integral and essential part of the franchisees' business and that the quality of those meats reflected on the franchisees' businesses.

[ 134 ] It was thus foreseeable that the franchisees would be identified as a public-facing retailer of potentially tainted meats while the meats posed a real danger to public health. I agree with Leitch J. that it was "reasonable, appropriate, and fair" that Maple Leaf should have reasonably foreseen and contemplated that providing unsafe products would result in economic losses to the franchisees.

(b) Proximity

[ 135 ] Reasonable foreseeability of harm "must be supplemented by proximity" (Cooper, at para. 31). In assessing proximity, the overarching question is whether the parties are in such a "'close and direct' relationship that it would be 'just and fair having regard to that relationship to impose a duty of care in law'" (Livent, at para. 25, citing Cooper, at paras. 32 and 34). Courts consider all "expectations, representations, reliance, and the property or other interests involved" (Cooper, at para. 34).

[ 136 ] Many products reach Canadian consumers through supply chains with multiple participants, which may be far-reaching and involve little to no contact between the suppliers and sellers down the line. However, when a manufacturer knows that it is acting as the exclusive supplier for a downstream commercial actor's brand and business, and when the downstream actor is bound by contract to use only the manufacturer's products, the relationship between them has a particularly close and direct quality.

[ 137 ] As discussed above, Maple Leaf entered into its foodservice partnership agreement with almost two decades of experience working with Mr. Sub, knowing that Mr. Sub operated in a franchise structure. By contracting with Mr. Sub, Maple Leaf also necessarily entered into a relationship with Mr. Sub's 424 franchisees, who were the entities actually using and selling Maple Leaf's products to consumers.

[ 138 ] Various features of the partnership agreement point towards a proximate relationship between Maple Leaf and the franchisees. First, with Maple Leaf acting as Mr. Sub's exclusive supplier for 14 core menu items under the agreement, Mr. Sub's franchisees depended entirely on Maple Leaf for those menu items. Second, Maple Leaf agreed to provide a national 1‑800 line available to franchisees and to have direct contact with franchisees. Maple Leaf was aware that its national account manager, in fulfilling this obligation, had direct contact with franchisees and was aware of the importance of Maple Leaf's products to the franchisees' businesses. Third, Maple Leaf agreed to ensure that the franchisees would be offered "best pricing", clearly demonstrating that the franchisees ⸺ not just Mr. Sub ⸺ were contemplated as the beneficiaries of the partnership agreement.

[ 139 ] The franchisees were clearly the actors that would be using and selling Maple Leaf's products, and were at the heart of Maple Leaf and Mr. Sub's contemplation in entering into the partnership agreement and providing for direct franchisee contact. They were, quite literally, the last actors in the chain before Maple Leaf's products reached consumers. It would therefore be artificial to say that Maple Leaf and the franchisees were not in a close and direct relationship.

[ 140 ] My colleagues, however, suggest that proximity cannot be found between Maple Leaf and the franchisees because the franchisees could have foreseen and addressed their risk by contract, and in fact did. I disagree. The three-way contractual matrix between Mr. Sub, Maple Leaf, and the franchisees does not foreclose a finding of proximity in this case.

[ 141 ] I agree that in cases involving pure economic loss, the contractual matrix linking the parties, if any, can be an important factor in finding a lack of proximity — either because the parties have already ordered their affairs in contract and have clearly allocated the risk of loss (Bow Valley Husky), or because the plaintiff chose not to enter into a contract that would have provided it with a remedy (Design Services). In such cases, finding proximity could allow the plaintiff to circumvent a contractual arrangement it made or could have made.

[ 142 ] In this case, however, I see no provision within the contractual matrix contemplating the types of economic losses that the franchisees claim or suggesting that the parties had already allocated the risk of those losses. The question is "what risks were [the parties] actually contemplating?" — that is, what was actually in the parties' contemplation when they concluded the contracts governing their arrangement (Bow Valley Husky, at para. 41).

[ 143 ] The franchisees did have the option to request to purchase ingredients from another source, subject to Mr. Sub's "absolute right to disapprove" within a 30-day timeline and the franchisees paying the costs for that approval process. I would not characterize this as adequate contractual protection against an unforeseen food safety crisis.

[ 144 ] When considering whether the franchisees were able to, and should have, contractually protected themselves from the types of economic loss they claim, a realistic approach must be taken. In Norsk, for example, McLachlin J. considered various factors going to whether protection by contract was available, including whether there were impediments to contracting such as business custom, inequality of bargaining power, unawareness of the risk, or difficulty in identifying the parties in advance, as well as whether the plaintiff was commercially sophisticated.

[ 145 ] An overly formalistic appeal to protection through contract therefore risks failing to take into account the parties' actual circumstances, including their commercial sophistication and bargaining power. There is a "rational distinction . . . between commercial parties with relatively equal bargaining strength on one hand and individual claimants confronted by a stronger party on the other hand" (J. Stapleton"Duty of Care and Economic Loss: a Wider Agenda" (1991), 107 Law Q. Rev. 249, at p. 287).

[ 146 ] I would conclude that the answer to that question is clearly "no" in this case.

[ 147 ] With no access to contractual privity with Maple Leaf, the franchisees contracted with their franchisor, Mr. Sub. Importantly"the relationship between a franchisor and franchisee is one of vulnerability for the franchisee", stemming from a significant power imbalance.

[ 148 ] Under a franchise arrangement, the franchisor grants the franchisee the right to sell, offer for sale or distribute goods or services that are associated with the franchisor. Given their unique and typically well-established brand or operating system, franchisors can command a premium from franchisees for the right to operate under their system, and franchisees typically agree to strict controls by the franchisor over the manner in which the business is operated and the products that can be purchased and sold.

[ 149 ] The fact remains, however, that franchisees are generally unable to negotiate more favourable terms to govern their relationship with the franchisor. The franchise agreement is usually a contract of adhesion, drafted by the stronger party and offered on a "take it or leave it" basis.

[ 150 ] These trends, well-known for decades, are borne out in this case: the appellant's franchise agreement was a standard form agreement that was common to all Mr. Sub franchisees and no negotiations were held when the agreement was renewed. The franchise agreement required the franchisees to purchase products exclusively from sources designated by Mr. Sub, and thus exclusively from Maple Leaf. The franchisees did not have bargaining power to negotiate directly with Maple Leaf or to protect themselves from an unsafe product recall caused by Maple Leaf's negligence.

[ 151 ] In my view, the fact that this power imbalance and loss of control is widespread in the franchise context does not make it any less acute or justify dismissing it. Nor does it change that the franchisees were, for all intents and purposes, unable to protect themselves contractually from the harm they suffered, which was entirely caused by an external event beyond their control — Maple Leaf's supply of a potentially deadly food product.

[ 152 ] I would therefore find that, far from negating the proximity that I have already found to exist between Maple Leaf and the franchisees, this contractual matrix points to a particular dependency and proximity in their relationship. In the context of the franchise structure, the contractual terms between Mr. Sub and Maple Leaf, on the one hand, and between Mr. Sub and the franchisees, on the other, created a close and direct relationship between Maple Leaf and the franchisees. Maple Leaf knew it was the exclusive supplier upon whom the franchisees depended for their business and knew, or should have known, that it could not injure the interests of the franchisees with impunity.

(c) Scope of Prima Facie Duty of Care

[ 153 ] The recoverable losses in this case depend on the content of the duty between Maple Leaf and the franchisees, taking into account both foreseeability and proximity. Leitch J. found that the contaminated meats posed a "foreseeable real and substantial danger" to the health and safety of consumers. I agree with Leitch J. that this is the type of foreseeable risk of harm that would engage a duty of care.

[ 154 ] As a manufacturer, Maple Leaf already owed consumers the well-established duty to take care to produce safe products — a duty which in my view is aligned with its duty to the franchisees. Here, the exclusivity arrangement and the franchisees' close relationship with Maple Leaf means that the franchisees should be understood as falling within the scope of the duty of care, to the extent that they suffered economic losses as a result of reasonable consumer response to the health risk posed by Maple Leaf's negligence.

[ 155 ] I would therefore conclude that, subject to the other requirements of negligence being met, it is fair and just to hold Maple Leaf responsible for the franchisees' direct economic consequences of being associated with unsafe Maple Leaf products — that is, the direct economic losses caused by a reduction in the franchisees' sales due to reasonable consumer response to the health risk associated with Maple Leaf's products.

[ 156 ] Having found that Maple Leaf owed the franchisees a prima facie duty of care, I turn to stage two of the Anns/Cooper test.

(2) Stage Two: Residual Policy Considerations

[ 157 ] In the second stage, the court considers residual policy considerations. These are not concerned with the relationship between the parties"but with the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally" (Cooper, at para. 37).

[ 158 ] Maple Leaf submits that imposing a tortious duty of care in this case would have a negative impact on the Canadian marketplace, in that manufacturers would be liable for the economic losses of anyone in their supply chain upon a recall and therefore would be reluctant to issue voluntary recalls. I address these arguments in turn.

[ 159 ] Maple Leaf suggests that the extent of a plaintiff's losses under a duty of care found on these facts would depend on media coverage or on how a particular product recall publicly unfolds. However, concerns about possible intervening causes or the directness of the causal link between the negligent act and the harm are addressed by the causation requirement, not the duty of care.

[ 160 ] Indeed, finding a duty of care in these circumstances should not be conflated with a guarantee that every possible economic loss being claimed will survive the rigours of the remaining requirements of a negligence claim. A franchisee's claim in negligence, including for economic losses, will necessarily be subject to standards and limitations imposed by the causation requirement, foreseeability with respect to remoteness of damages, and the assessment of damages itself.

[ 161 ] An additional policy consideration, raised by both Maple Leaf and the Court of Appeal, is the risk that imposing a duty of care will result in a chilling effect on manufacturers issuing voluntary recalls, and thus conflict with duties owed to the public. However, I find this argument unpersuasive for two reasons.

[ 162 ] First, food recalls are highly regulated in Canada. Food operators are already obligated to notify the Minister of Agriculture and Agri-Food when their food presents a risk of injury to human health, and a voluntary recall may be initiated by the CFIA through a request from the Minister (Canadian Food Inspection Agency Act, s. 19). There are significant regulatory consequences for those who fail to cooperate with recalls (Safe Food for Canadians Regulations, s. 84). In this regulatory context, the risk that a manufacturer might forego a recall to avoid liability to its supply chain is already constrained.

[ 163 ] Second, voluntary recalls actually help negligent manufacturers to mitigate losses caused by risky products. If a negligent manufacturer declined to recall its products and obscured their potential danger, for example, and a franchisee's customers were injured as a result, the manufacturer's total liability could be far more significant than the franchisee's economic losses. I would not want to create a legal environment that, in effect, encourages manufacturers to delay dealing with risky products in the interest of profit.

[ 164 ] As a result, none of these residual policy considerations are sufficiently persuasive to oust or negate the prima facie duty of care on Maple Leaf in this case. I therefore find that Maple Leaf owed the franchisees a duty to take reasonable care not to place unsafe goods into the market that could cause economic loss to the franchisees as a result of reasonable consumer response to the health risk posed by those goods.

[ 165 ] In my view, there is minimal utility at this time in labelling the category of recovery for pure economic loss in negligence under which this duty falls. The existing categories originated from an attempt to classify cases in which courts had recognized duties of care in order to guide future analysis. But labelling the category should not take precedence over conducting a full duty of care analysis using the Anns/Cooper framework. The important point, in my view, is that the existence of a duty is justified on the facts of this case.

V. Conclusion

[ 166 ] There was no appeal from the Court of Appeal's order that the franchisees were owed a duty of care by Maple Leaf with respect to their claim for clean-up costs and other costs related to the disposal, destruction and replacement of ready-to-eat meats. I would not disturb that part of the Court of Appeal's order.

[ 167 ] I find that Maple Leaf owed the franchisees a duty to take reasonable care not to place unsafe goods into the market that could cause economic loss to the franchisees as a result of reasonable consumer response to the health risk posed by those goods.

[ 168 ] I would therefore allow the appeal, set aside the order of the Court of Appeal, and reinstate the summary judgment order of the Superior Court regarding the duty of care owed by Maple Leaf to the franchisees, with costs throughout.

Appeal dismissed with costs, Wagner C.J. and Abella, Karakatsanis and Kasirer JJ. dissenting.

Solicitors for the appellant: Lerners, Toronto.

Solicitors for the respondents: Stieber Berlach, Toronto.

Footnotes

[1] A fifth category"the independent liability of statutory public authorities", as the name makes clear, arises not between private parties but between a statutory public authority and private parties.

[2] Indeed, this Court has said that relational economic loss is recoverable only in "exceptional" circumstances (Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., 1997 307 (SCC), [1997] 3 S.C.R. 1210, at para. 44). And, as the Court in Norsk noted, what constitutes an "exceptional" case will depend on the facts and is to be developed incrementally (at para. 73).

[3] While the plaintiff in Winnipeg Condominium was the condominium corporation itself, La Forest J. conceived of its position as akin to that of an occupier of a building. He reasoned that the defendant contractor's negligence had "the capacity to cause injury not only to the building itself, but also to the inhabitants of the building and to other persons and property in the vicinity" (para. 21). The economic loss sustained by the condominium corporation in repairing the dangerous cladding was therefore, in La Forest J.'s eyes, a proximate consequence of the risk to its occupiers and passers-by.